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Shares of Vale SA Surge on Samarco Dam Settlement

By Tyler Crowe - Mar 2, 2016 at 10:35PM

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Vale was able to give some clarity to investors about the recent Samarco dam disaster after announcing it had come to an agreement with the Brazilian authorities.

Image source: Vale SA corporate website.

What: Shares of Brazilian miner Vale (VALE 0.00%) ended up 13% today following the announcement that both it and joint-venture partner BHP Billiton (BHP -0.83%) had come to an agreement with the Brazilian authorities to pay for the damages related to the Samarco dam.

So what: After months following the rupture of the Samarco dam that led to a major spill of mine tailings that took the lives of several people and caused extensive environmental damage, both Vale and BHP have agreed to pay the Brazilian government approximately $1.1 billion over the next three years. It should be noted, though, that this deal does not include any criminal or civil cases that could arise from this accident.

Now what: As with any major environmental disaster, the biggest fear of investors is the uncertainty that comes. All you need to do is look at what happened to BP after the Deepwater Horizon spill and the five years it took before anything was definitively resolved. That waiting period weighed heavily on shares. So the faster that Vale can settle any claims related to this mine disaster, the better for its stock.

Getting this first settlement done is the first step, but chances are there will be several more before this is completely resolved. Add to that a rough market of iron ore and mining in general, and it may be best for investors to stay on the sidelines until we get a clearer picture as to how this shakes out for Vale.

 

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Stocks Mentioned

Vale S.A. Stock Quote
Vale S.A.
VALE
$13.79 (0.00%) $0.00
BHP Group Stock Quote
BHP Group
BHP
$52.50 (-0.83%) $0.44

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